2023–24 overall tax gap
Our estimate for the overall tax gap for 2023–24 is $72.7 billion against our estimate of the total theoretical expected amount of taxation of $707 billion. This represents an overall net tax gap estimate of 10.3%.
Figure 6 shows the overall tax gap. The largest contributors (in dollar value) to the overall tax gap remain the same as last year.
Figure 6: Estimated total tax gap for 2023–24
The overall gap of $72.7 billion (or 10.3%) includes:
- small business – $36.0 billion
- individuals not in business – $16.0 billion
- goods and services tax – $7.7 billion
- large corporate groups – $3.5 billion
- high wealth and medium business – $4.1 billion
- excise – $1.6 billion
- fringe benefits tax – $1.8 billion
- all other tax gaps – $2.0 billion.
Market segments
Australia's tax gap program estimates component tax gaps for various market segments. This is done to provide greater insights into the overall tax performance of these market segments. However, internationally, it is common for tax gaps to be grouped into 4 main groups – personal income tax, corporate income tax, value added tax (that is, GST) and excise taxes. The following section brings together the relevant gap components according to those 4 groups.
Personal income tax gap
The personal income tax gap consolidates all the income tax gaps relating to individual tax returns.
It includes the income tax gaps for:
- High wealth individuals
- Individuals not in business
- Individuals in small business
- Individuals in medium business
Overall, we are now seeing an upward trend in the personal income tax gap since 2019–20. The sole contributor to this is individuals in small business (sole traders) who are a component of the small business income tax gap. Since 2019–20, the net tax gap for individuals associated with high wealth groups and medium businesses have both declined. The net tax gap for individuals in small business has increased from 15% in 2019–20 to 21.1% in 2023–24.
Long-term non-payment of PAYG withholding is reported separate from the personal income tax gap. It reflects amounts withheld from employees' salary and wages but not remitted to us by employers. Employees may still be entitled to claim these unpaid withholding credits in their income tax returns. As a results, the payment gap of PAYG withholding arises from employer non-compliance rather than individuals.
Figure 7: Personal income tax gap 2016–17 to 2023–24
Note: The gap as a percentage is shown on the right-hand side (RHS) in these bar charts.
|
Element |
2015–16 |
2016–17 |
2017–18 |
2018–19 |
2019–20 |
2020–21 |
2021–22 |
2022–23 |
2023–24 |
|---|---|---|---|---|---|---|---|---|---|
|
Net gap % (RHS) |
9.0% |
9.4% |
9.1% |
10.1% |
9.7% |
10.4% |
10.5% |
12.0% |
12.4% |
|
Gross gap % (RHS) |
9.9% |
10.4% |
9.8% |
11.3% |
10.3% |
11.1% |
11.2% |
12.7% |
13.0% |
|
Tax expected to be collected ($m) |
197,262 |
202,830 |
219,774 |
227,038 |
236,999 |
249,112 |
279,472 |
308,356 |
341,767 |
|
Net gap ($m) |
19,552 |
21,084 |
21,973 |
25,646 |
25,478 |
29,058 |
32,916 |
41,991 |
48,225 |
|
PAYG withholding long-term non-payment |
366.7 |
402.1 |
526.1 |
734.6 |
764.5 |
977.2 |
1215.1 |
1484.0 |
1,553.0 |
Corporate income tax gap
The corporate income tax gap consolidates all the income tax gaps relating to corporate tax returns. It includes the income tax gaps for:
- high wealth income tax gap
- large corporate groups income tax gap
- small business income tax gap
- medium business income tax gap.
The overall corporate income tax gap estimate increased from 2019–20 to 2021–22, driven by increases in the small company tax gap. The other components of the corporate income tax gap have remained steady over the same period.
Figure 8: Corporate income tax gap 2016–17 to 2023–24
|
Element |
2015–16 |
2016–17 |
2017–18 |
2018–19 |
2019–20 |
2020–21 |
2021–22 |
2022–23 |
2023–24 |
|---|---|---|---|---|---|---|---|---|---|
|
Net gap % (RHS) |
6.7% |
6.0% |
6.2% |
5.9% |
5.5% |
6.4% |
7.3% |
7.2% |
7.3% |
|
Gross gap % (RHS) |
9.0% |
7.6% |
8.3% |
9.4% |
7.2% |
7.9% |
9.4% |
9.2% |
8.8% |
|
Tax expected to be collected ($m) |
66,539 |
74,976 |
84,338 |
89,903 |
90,017 |
107,946 |
128,625 |
140,453 |
144,239 |
|
Net gap ($m) |
4,792 |
4,819 |
5,581 |
5,653 |
5,223 |
7,435 |
10,157 |
10,909 |
11,359 |
Goods and services tax gap
The latest estimates indicate a decrease in the net tax gap to $7,270 million for 2024–25, from $7,714 million for 2023–24. A small increase in the propensity of GST-registered entities to report GST liabilities was the key factor. As a percentage of theoretical GST – which controls for growth in the GST system across time and assists comparability across annual gap estimates – the net gap has reduced from 8.3% for 2023–24 to 7.6% for 2024–25.
Figure 9: Goods and services tax gap 2015–16 to 2023–24
|
Element |
2015–16 |
2016–17 |
2017–18 |
2018–19 |
2019–20 |
2020–21 |
2021–22 |
2022–23 |
2023–24 |
|---|---|---|---|---|---|---|---|---|---|
|
Net gap % (RHS) |
12.3% |
11.3% |
11.0% |
9.8% |
7.1% |
4.0% |
6.6% |
8.7% |
8.3% |
|
Gross gap % (RHS) |
16.9% |
15.0% |
14.7% |
13.8% |
10.3% |
8.1% |
14.8% |
12.5% |
11.5% |
|
Tax expected to be collected ($ b) |
57,357 |
61,137 |
63,433 |
64,692 |
64,772 |
69,427 |
75,085 |
81,615 |
85,356 |
|
Net gap ($ b) |
8,056 |
7,779 |
7,826 |
7,063 |
4,941 |
2,885 |
5,343 |
7,804 |
7,714 |
Excise and other taxes gap
The remaining tax gap estimates include excise taxes and several smaller transactional and income-based taxes. Collectively they contribute $3.8 billion, or 6.5% of the total net tax gap for 2023–24. Fringe benefits tax (FBT), alcohol and fuel excise represent 88% of this total gap. Fuel excise is the most volatile estimate, where much of the variation in due to temperature sensitivity associated with measuring the volume of fuel, as opposed to actual changes in compliance.
Figure 10: Excise and other taxes gap 2015–16 to 2023–24
|
2015–16 |
2016–17 |
2017–18 |
2018–19 |
2019–20 |
2020–21 |
2021–22 |
2022–23 |
2023–24 |
|
|---|---|---|---|---|---|---|---|---|---|
|
Net gap % (RHS) |
7.2% |
6.3% |
5.6% |
6.4% |
6.6% |
5.6% |
6.3% |
7.4% |
5.6% |
|
Gross gap % (RHS) |
7.3% |
6.8% |
6.3% |
7.7% |
7.3% |
6.1% |
6.8% |
7.7% |
5.9% |
|
Tax expected to be collected ($ b) |
39,214 |
42,152 |
44,781 |
41,511 |
44,905 |
56,926 |
48,358 |
50,413 |
64,559 |
|
Net gap ($ b) |
3,037 |
2,855 |
2,672 |
2,817 |
3,174 |
3,404 |
3,273 |
4,027 |
3,828 |
Shadow economy findings
The shadow economy refers to legal and illegal economic activity that is not reported and designed to evade tax or exploit the regulatory or welfare systems (or both).
While the shadow economy is not limited to tax and superannuation, this is our focus in a tax gap context. The tax effects of shadow economy activities are components of the relevant tax gap which is measured against full compliance with relevant tax legislation. For tax gap purposes, we focus only on the resultant tax effects – that is, the tax revenues lost due to shadow economy activities.
Most tax types will experience some behaviours indicative of shadow economy involvement. The taxes included in this summary are those where the tax effects of shadow economy behaviours are both material and estimable. It should not be concluded that other tax types not included in this summary are free from shadow economy activities.
See more information and the actions we take at Shadow economy.
The key findings from our tax gap analysis related to shadow economy activities are summarised as system-wide aggregates as follows. The latest shadow economy estimates generally relate to the 2023–24 financial year.
Note:
- We no longer publish estimates of the tobacco tax gap or include as part of the overall tax gap. The office of the Illicit Tobacco and E-cigarette Commissioner (ITEC) will provide more comprehensive reporting on the size of both the illicit tobacco and e-cigarette markets and estimates of the excise and excise-equivalent customs duty avoided.
- Fuel tax credit claims are lodged with us through observable channels. Some claims may ultimately be determined as ineligible or fraudulent (or both). But as they are known to us, they are not regarded as shadow economy behaviours.
System-wide aggregates
Our latest tax gap estimates indicate that around $30.9 billion of tax was foregone in 2023–24 due to shadow economy activities associated with transaction-based and income-based taxes. This was higher than our updated estimate for 2022–23 of $27.6 billion. The estimated tax lost due to shadow economy activities in 2023–24 represented around 45.2% of the aggregate gross gap for these taxes, up from a revised estimate of 44.5% in 2022–23.
Theoretical tax is our best estimate of the tax that would be payable for each year if all relevant taxpayers in the shadow economy population were fully compliant with relevant tax legislation. Representing tax foregone due to shadow economy behaviours as a share of theoretical tax controls for growth in the tax system over time and assists comparability across years. As a share of theoretical tax revenue for these taxes, shadow economy tax lost increased steadily from 4.6% in 2018–19 to 6.0% in 2023–24. See Table 14 for more detail.
The share of aggregate shadow economy tax effects associated with income-based taxes has steadily increased from around 87% in 2018–19 to around 90% in 2023–24, despite reductions in relevant tax rates across that period. Conversely, the share associated with transaction-based taxes has fallen from around 13% in 2018–19 to around 10% in 2023–24.
Shadow economy effects associated with administered programs are not included in our system-wide aggregates.
The evolution of estimated tax effects of shadow economy activities for transaction and income-based taxes is shown in Figure 11. Theoretical tax for each year included in the figure and table below is the aggregate across the tax types with shadow economy behaviours.
Figure 11: Shadow economy tax effects and theoretical tax, $ billion and percentage of theoretical tax
The aggregate tax effects of shadow economy behaviours accelerated after COVID-19 and have more than doubled since 2015–16. Reflecting this they have significantly outpaced growth in aggregate theoretical tax; meaning a larger share of the tax base is being lost. Foregone tax due to shadow economy activity has also grown faster than aggregate gross gaps; meaning addressing the shadow economy footprint is becoming increasingly critical in reducing the aggregate tax gap.
The tax effects of the shadow economy are growing faster than nominal GDP implying a rising share of the national economy is not contributing to tax revenues, is distorting competition unfairly and is potentially constraining provision of public services or social welfare.
Figure 12: Shadow economy tax effects compared with various metrics, index 2015–16 = 100
Transaction-based taxes
Transaction-based taxes relate to taxes that are paid when you buy, sell, manufacture, produce, store or import certain goods or services.
Alcohol excise gap
All illicit activity (both large- and small-scale) in the alcohol market is regarded as shadow economy behaviour and is the major contributor to the overall alcohol excise gap. Estimates of large-scale shadow economy are based on targeted intelligence reporting and seizures while small-scale shadow economy estimates capture unlicensed alcohol distillation and passenger arrivals that do not report alcohol as required. These both represent activity where the participants are deliberately not reporting solely to avoid their obligations to pay alcohol excise.
The tax effects of shadow economy activities have increased from $903 million (90.5% of the gross gap for alcohol excise) in 2022–23 to around $1,072 million (91.5%) in 2023–24, and further to $1,159 million (91.9%) in 2024–25. The upwards revised estimates of large-scale illicit activity across 2020-21 to 2024-25 reflect new intelligence. Excise lost due to large-scale illicit activity is estimated to have more than doubled over the last five years. Small scale illicit activity declined in years impacted by COVID-19 as international passenger volumes declined; but has returned to its pre-COVID-19 trend in subsequent years.
Goods and services tax gap
Our estimate of shadow economy consumer spending blends information from the Australian Bureau of Statistics (ABS) and the Black Economy Taskforce to provide an indicative estimate. This better captures the shadow economy and for recent years has added over $1 billion to our estimate of GST foregone due to shadow economy activities.
Shadow economy spending by consumers tracks ABS estimates of consumer spending with shadow economy behaviours. It is estimated that shadow economy behaviours have resulted in foregone GST revenue of around $1.9 billion in 2022–23 (16.8% of the gross gap for GST) before rising to around $2.0 billion (18.8%) in 2023–24; and further to $2.1 billion (19.6%) in 2024–25.
|
Transaction-based program |
Shadow economy estimation |
2015–16 |
2016–17 |
2017–18 |
2018–19 |
2019–20 |
2020–21 |
2021–22 |
2022–23 |
2023–24 |
|---|---|---|---|---|---|---|---|---|---|---|
|
Alcohol excise ($m) |
Illicit channels only |
486 |
402 |
420 |
448 |
490 |
651 |
737 |
903 |
1,072 |
|
GST ($m) |
Based on ATO estimates |
1,356 |
1,397 |
1,468 |
1,520 |
1,449 |
1,448 |
1,586 |
1,887 |
2,000 |
|
Total transaction-based tax effect ($m) |
n/a |
1,842 |
1,799 |
1,889 |
1,969 |
1,939 |
2,099 |
2,322 |
2,790 |
3,072 |
|
Proportion of theoretical tax liability of transaction taxes above (%) |
n/a |
2.6 |
2.4 |
2.4 |
2.5 |
2.5 |
2.6 |
2.6 |
2.8 |
3.0 |
Income-based taxes
Income-based taxes relate to taxes based on income from various sources.
Small business income tax gap
Shadow economy activities for small business mainly relate to under-reported business income, over-claimed business deductions, people deliberately remaining outside the taxation and regulatory systems; and hidden wages for individuals associated with these small businesses. Overall, the tax effects due to shadow economy activities in the small business sector increased from around $19.3 billion (59.2% of the small business gross gap) in 2022–23 to around $22.0 billion (59.6%) in 2023–24.
The main driver of this increase relates to undisclosed business income and over-claimed business deductions, the combined tax effects of which increased from $15.8 billion in 2022–23 to $17.9 billion in 2023–24. Annual foregone tax associated with undisclosed business income and over-claimed business deductions has accelerated post-COVID-19, more than doubling over the period 2019–20 to 2023–24. The tax effects associated with hidden wages and people outside the system have both grown more steadily.
The small business gap remains the largest contributor to aggregate tax foregone due to shadow economy behaviours (around 71% of the total shadow economy tax effects in 2023–24).
Individuals not in business income tax gap
Shadow economy activities for this tax type relate to hidden wages and to people who intentionally stay outside the taxation and regulatory systems. The aggregate tax effects of both these activities grew from around $4.0 billion in 2022–23 to around $4.4 billion in 2023–24. The tax effects of hidden wages were by far the major component; increasing from $3.7 billion in 2022–23 to $4.0 billion in 2023–24. The shadow economy contribution to the overall Individuals gross gap peaked at 28.8% in 2018-19 before falling to 26.0% in 2022–23 and further to 24.8% in 2023–24.
Fringe benefits tax (FBT)
Shadow economy behaviours relate to unreported FBT and an estimate of FBT that should be reported by employers who should, but do not, participate in the FBT system. FBT expenses are tax deductible reducing the incentive for employers to deliberately hide FBT payments. Large and government employers also typically have well established organisational structures; with high levels of internal controls; and are subject to significant external scrutiny by regulators, other stakeholders and the wider community. These constraints suggest that FBT-related shadow economy behaviours by large and government employers are unlikely. FBT-related shadow economy behaviours are concentrated in small-medium employers who should be paying FBT but have not registered their requirement to lodge FBT returns.
The FBT tax effects (net of recognising that FBT paid is deductible for corporate income tax purposes) associated with these activities was estimated at $1.4 billion in 2023–24, down from $1.5 billion in 2022–23. As a share of the estimated gross gap for FBT, tax effects associated with shadow economy behaviours declined from 81.6% in 2022–23 to 80.2% in 2023–24. The shadow economy share of the FBT gross gap is consistently higher than for most other tax types.
|
Income-based program |
Shadow economy estimation |
2015–16 |
2016–17 |
2017–18 |
2018–19 |
2019–20 |
2020–21 |
2021–22 |
2022–23 |
2023–24 |
|---|---|---|---|---|---|---|---|---|---|---|
|
Small business ($m) |
Estimated using sample |
7,016 |
6,838 |
6,919 |
9,351 |
10,038 |
12,819 |
15,573 |
19,292 |
22,011 |
|
Individuals not in business ($m) |
Estimated using sample |
2,585 |
2,759 |
2,921 |
3,113 |
3,188 |
3,244 |
3,451 |
4,002 |
4,395 |
|
FBT ($m) |
Based on non-reporting |
1,241 |
1,300 |
1,302 |
1,302 |
1,358 |
1,428 |
1,459 |
1,504 |
1,440 |
|
Total income-based tax effect ($m) |
Based on non-reporting |
10,842 |
10,897 |
11,142 |
13,766 |
14,585 |
17,490 |
20,484 |
24,798 |
27,846 |
|
Proportion of theoretical tax liability of income-based taxes above (%) |
n/a |
4.7 |
4.5 |
4.3 |
5.2 |
5.3 |
6.0 |
6.3 |
6.7 |
6.8 |
Administered programs
We administer a range of payments and transfers on behalf of the Australian Government, including incentives and rebates delivered through the tax and superannuation systems. Shadow economy effects associated with administered programs remain significant but are not included in the system-wide tax effects discussed above.
Super guarantee gap
The sole shadow economy behaviour in this context relates to various forms of hidden wages designed to reduce or evade the obligation on employers to deduct superannuation guarantee amounts from ordinary time wages (that is, excluding wage payments relating to overtime) paid to employees, and to forward those amounts to relevant super funds. The shadow economy estimate for superannuation guarantee is around $2.6 billion for 2023–24 (representing around 30.4% of the estimated gross gap for the superannuation guarantee) compared with around $2.4 billion (31.6%) in 2022–23. The estimated dollar increases generally reflected moderate employment and wages growth and the higher minimum contribution rate applicable in 2023–24 (11.0% in 2023–24 up from 10.5% in 2022-23). The continued increase in the minimum contribution rate in future gap years (beyond 2023–24) will tend to increase estimated shadow economy contribution effects in dollar terms (assuming an unchanged propensity for employers to participate in the shadow economy).
Pay as you go (PAYG) withholding gap
Hidden wages are the only type of shadow economy activity included for this gap. As the PAYG withholding gap and personal income tax gaps are estimated separately, missing income tax that should have been withheld by employers is initially captured in both gap estimates. To avoid double counting, we capture the tax effect of hidden wages only once across the PAYG withholding and income tax gaps. As a result, some of the tax impact of hidden wages estimated for the PAYG withholding gap is said to have been 'passed-through' to be reflected in income tax gaps.
After accounting for this pass-through, the residual total shadow economy estimate for PAYG withholding is around $489 million for 2023–24 (representing around 5.9% of the estimated gross gap for PAYG withholding) down from around $620 million (8.0%) in 2022–23.
|
Administered program |
Shadow economy estimation |
2015–16 |
2016–17 |
2017–18 |
2018–19 |
2019–20 |
2020–21 |
2021–22 |
2022–23 |
2023–24 |
|---|---|---|---|---|---|---|---|---|---|---|
|
Super guarantee ($m) |
Hidden wages based on 2.3% uplift |
1,660 |
1,710 |
1,796 |
1,891 |
1,964 |
2,047 |
2,195 |
2,412 |
2,585 |
|
PAYG withholding* ($m) |
Hidden wages based on 2.3% uplift |
981 |
669 |
631 |
623 |
583 |
655 |
683 |
620 |
489 |
|
Total administered programs ($m) |
Total of above |
2,641 |
2,379 |
2,427 |
2,514 |
2,547 |
2,702 |
2,878 |
3,032 |
3,074 |
|
Proportion of theoretical liability (%) |
n/a |
1.1 |
1.0 |
0.9 |
0.9 |
0.9 |
0.9 |
0.9 |
0.8 |
0.7 |